Tuesday, February 22, 2011

Reasons for not believing today's authorities, part 1

The politically middle-of-the road 'Korrespondent' magazine's cover story for its 11th February 2011 print issue was entitled:

"30 reasons why it is difficult to believe today's authorities"

'Korrespondent' has collected together 30 facts which cast doubt on declarations by president Yanukovych and his colleagues to turn Ukraine into a contemporary democratic state.

I've loosely translated some of these below:

1. Reduction in the size of the state apparatus - for show only

The number of 'chynovnyky' at city level was to be halved in order to save 1Bn Hn and reduce corruption by 50%. The President abolished 4 ministries out of 20, reduced the number of ministers and vice ministers from 36 to 17, and halved number of central executive organs.

In actual fact little has changed. In the 2011 budget the costs for maintaining the administrative apparatus, according to the opposition, has actually increased by a quarter. Importantly, administrative reform has not brought any qualitative changes. The state organs have not become a place for the self-realisation of talented and energetic people, but rather remain a means of enrichment for those who make up the rules of the system.

2. Companies linked to the authorities are making money out of Euro 2012

Multibillion state investments intended for preparations for Euro-2012 are granted by vice-PM Boris Koresnikov - the minister directly responsible for this, without any tendering process, e.g. as is the case for the main focus for the event, the NSK Olympiysky stadium in Kyiv. The projected cost for its reconstruction has now risen from 1.5 Bn Hn to 3 Bn Hn. According to 'Ukrainska Pravda' website, [U.P.] one of the companies involved in construction, AK Engineering, started work on the project only after Kolesnikov took over the Euro 2012 preparations. Other major projects have recently also been taken on by this company without tender competition. Investigation by U.P. reveal that the company is half-owned by Kolesnikov's lawyer from the early '90's. [And is also linked to shadowy off-shore companies in Belize..Levko]

3. Conflicts of interest

One of Ukraine's richest men, Andriy Kluyev, who is also the Minister for Economic Development and Trade, not only manages the economy of the country but also helps his own companies obtain large state contracts. According to U.P. his government commission gave one fifth of the total state investment earmarked for hi-tech development projects - 200Mn Hn, to the Zaporizhzhya semiconductor plant [ producer of semi-finished products for solar panels], which, via the Austrian Activ Solar GmbH, is linked to Kluyev.

4. Shadow capital

The president and his family have at their disposal assets of over $100Mn, the origins of which are not known. Just their publicly declared business assets, president's son Aleksandr's MAKO corporation [the biggest business centre on Donetsk], and his property in Sevastopol, are estimated by 'Korrespondent' to have a value of about $100Mn. The president's daughter-in-law owns an elite business club. The Yanukovych family occupies a whole block of expensive houses in Donetsk, and he himself 'owns' the massive Mezhyhirya residence [more on this later]. Official biographies of the president state that he never ran any business but lived on a civil servant's salary for many years, e.g. in 2009 he officially earned less than $30,000. He says his oldest son is a dentist, but it is unclear how the dentist son of a civil servant came to own such huge business assets in just a few years.

5. Pressure on business

The coming of the new administration has brought with it increased pressure on entrepreneurs and businessmen from fiscal organs in the form of inspections and extortion by state 'chynovnyky'. Some enterprises claim the number of inspections has risen tenfold. The result has been the portion of Ukrainians forced to give bribes has greatly increased. Transparency International claim the the number who gave a bribe at least once has risen, from 21% in 2009, to 34% in 2010. Importers claim that their format of operation has dramatically changed. Apart from paying usual customs duties, they are forced to give bribes just to bring in their products into the country.

6. Fight over natural resources

Mykola Zlochevsky, who was actively involved with mineral resources extraction, is now head of the Ministry of Ecology and Natural Resources - the body which controls the granting of licences for development of mineral deposit extraction. But resisting temptation was too difficult- with the coming of Yanukovych the state-owned Naftohaz Ukrainy has been deprived of its licence to develop the largest gas-condensate deposits in Ukraine, and the place of the state gas company has been taken by 'Ukrneftobureniye', a commercial enterprise. Until recently the current minister of the ecology was one of its owners..

7. Value Added Tax - but not for all

The authorities return VAT to businesses selectively, providing conditions for unfair competition. Currently one company, Arcelor-Mittal Kryviy Rih, is owed 10% of the total shortfall for the entire country. In response to the company's protest that they are owed 3Bn Hn, they were 'hit' with a law suit for 23 Million Hn for importing low quality coal. A pr representative for the company claims one of their rivals, SCM which is owned by PoR deputy Rinat Akhmetov, does not appear in the top five in a list of creditors, despite SCM's huge turnover.

8. Action against leaders of Maidan-2

Over 100 people who took part in recent protests against proposed tax laws directed against small and medium businesses are being questioned and investigated. 132 stakes driven in Independence Square apparently caused 230,000 Hn damage. In 2007 similar actions by Party of Regions [PoR] who were in opposition at that time did not result in any criminal action being taken against PoR.

9. Police search of Yelena Bilozerska

On 12th of January 2011 police raided journalist and civic activist Yelena Bilozerska's apartment, then they took her in for questioning. Her 'crime' was publishing news about the New Year's Eve attempt to burn down the Party of Region's offices in Kyiv. She had reposted a YouTube video, apparently filmed by the alleged perpetrators. Ministry of Internal Affairs took all of her technical equipment, computers, hard drives etc. Some of the equipment has been returned, but not the storage media. [Her website is here]

10. President rewrites Constitution to suit his purposes

On 1st October 2010 the 2004 version of the Constitution was invalidated by the Constitutional Court of Ukraine and the 1996 version came back into force again, returning many levers of power from parliament back to the president. According to the law, changes to the Constitution can only be made by a 2/3 majority in parliament, which the president did not command. On coming to power the president bypassed parliament, having first appointing 4 loyal judges from the east and the south having close ties to PoR, to the Constitutional Court. The chief examining C.C. judge overseeing this matter was Serhiy Vdovychenko, who for five years was head of the Makiyivka city court [Donetsk oblast].

11. National interests given away in return for gas

On 27th April 2010 parliament ratified the Kharkiv Agreement signed by the Ukrainian and Russian presidents. Kyiv received a 10 year discount for Russian gas, while the Russian Black Sea fleet extended its lease in Crimea for 25 years. As a result, Ukraine nullified any possibility of joining NATO while the foreign fleet is stationed on its territory. In 2019, when the gas contract ends, Ukraine will again have to renegotiate a price for gas, while the Russian fleet will remain in Crimea until 2042.

The president personally took the decision, which to a large degree determines the external political direction of the country and protects the centre of Russian influence in Crimea for the next 25 years. Yanukovych was completely aware that a significant part of the Ukrainian population was categorically against such a deal.

12. Cadillac for the head of the Ministry of Internal Affairs

Last year, NUNS deputy Hennadiy Moskal publicly claimed that the ministry's motor pool had been augmented by a $64,000 Cadillac Escalade. The ministry accepted this was true but stated the vehicle had been a gift from an anonymous donor, not to the minister himself, but rather to the whole department. In most countries giving such a gift for unknown services would be regarded as corruption and a reason for a criminal case to be set up. To clear up the scandal the vehicle was passed on to the Ministry of Foreign Affairs for the purpose of transporting foreign delegations. Moskal's requests for the Prosecutor General to investigate the matter have not received any response, and Anatoliy Mohilyov, the Minister at the centre of this affair, remains in place.

13. One of their own for Prosecutor-General

Last November Viktor Pshonka was appointed Prosecutor-General by Viktor Yanukovych. Pshonka, a native of Donetsk, worked there as a state prosecutor. His son Artem has twice been elected PoR parliamentary deputy. Such a close relationship calls into question his objectivity and impartiality - qualities essential for a prosecutor. After his appointment a whole series of criminal cases have been opened against members of former prime minister Tymoshenko's cabinet, whilst clearly not by chance, obvious legal transgressions by members of PoR have been ignored.

14. Methods of operation against former Minister of the Interior Yuriy Lutsenko

A criminal case, minor by Ukrainian standards, has been opened against the former mininster. He allegedly promoted his personal driver to a status higher than he should have attained. The prosecutor claims the driver had been overpaid by 40,000 Hn as a result. [This later grew to 360,000 Hvn]. Lutsenko was arrested and detained for failing to familiarise himself with the case against him. Whilst behind bars, two further cases were opened against him: for sanctioning illegal investigations into the poisoning of former president Viktor Yushchenko, and for approving an overspend for 2009 Day of the Police celebrations. The whole case looks trumped up, particularly against the background of the gifted luxury Cadillac.

15. Only the best for big business

On December 2nd 2010 parliament passed a new tax code into law. The document, awaited for many years by the country, did away with many local taxes, reduced certain tax rates, and granted preferential rates for ten years to certain spheres of economic activity. The greatest beneficiaries of the new tax code have been big businesses, whose most visible representatives are members of PoR or are close to today's authorities. The new tax code has only complicated life for small business, judicially imposing more social injustice. The tax code has also given the green light to mass inspections, without simplifying the taxation system as a whole.

In developed countries, small and medium business accounts for about 50% of GDP, in Ukraine it is about 10%. After the new tax code was passed entrepreneurs have started handing in their business licences 'en masse'. It is hardly likely small and medium businesses will become the economic locomotive they should be.